Bank policymaker says faster US interest rate cuts could fuel UK inflation

A Bank of England policymaker has cautioned that faster interest rate cuts in the US could slow down the process in the UK, amid pressure from President Donald Trump for its central bank to reduce borrowing costs.

Megan Greene said the Bank may have to react to monetary policy decisions abroad if they fuel UK inflation.

Economist Ms Greene is one of the nine members on the Monetary Policy Committee (MPC) responsible for setting UK interest rates.

Speaking at an event at the Resolution Foundation think tank, Ms Greene said that as a small and open economy, prices in the UK are “likely to be influenced by price dynamics abroad”.

The size and influence of the US economy has given weight to “conventional wisdom that other central banks must ‘follow the Fed'”, she said, referring to its central bank the Federal Reserve.

But Ms Greene argued that there was a “strong case for the Bank of England doing exactly the opposite”.

“If the Fed were to cut rates more aggressively than the Bank this year, this should cause US demand for UK exports to rebound, providing upward pressure on UK inflation,” she said.

“The markets are currently pricing in a large risk of a looser Fed policy stance in 2026.

“If this were to materialise, then it would – all else equal – push up on UK inflation.

“This would, in my view, give even greater cause for concern about a risk of UK inflation persistence over that of weaker demand, warranting a slower withdrawal of monetary policy restriction in the UK.”

The comments come as Mr Trump has repeatedly said he wants the Fed to cut interest rates faster.

The path for US interest rates could partly depend on who is picked to succeed current Fed chairman Jerome Powell, whose term ends in May, with Mr Trump saying he will nominate someone willing to speed up rate cuts.

Also on the topic of inflation, Ms Greene said she was less concerned about the risk that disinflation has slowed than she was a few months ago.

This is largely because of policy measures in Chancellor Rachel Reeves’ autumn budget, namely a £150 cut to the average household energy bill from April.

Inflation is widely expected to drop when this measure comes into effect.

Nevertheless, Ms Greene maintained that she would be “watching household and business inflation expectations” in the months ahead to see if they come down in line with the inflation readings.

“Even more concerning, in my view, are the forward indicators for wage growth,” she added.

Private sector wage growth has been coming down, but the Bank’s outlook for the year ahead is that “this decline may have run its course”, she said.